I Think My Parents Are Being Greedy
Posted May 10, 2013
WRAL Reader Question
We rent one of my parent's houses (2 years renting it in June 2013). My parent's want to sell the house we are renting, to us. The house was purchased for $10k from the bank (foreclosure) and my parent's remodeled it spending $40k. The tax value of the house is $55,600 and the land is worth $17,600.
My parents sent us a breakdown of what they are seeking for the house and it goes like this:
They are doing owner financing shown below:
$79,000 - Total they want for the house
$10,000 - Down payment they are wanting (which we have in the bank).
6% interest; payments of $1,000 per month for 8 years. (We pay $750 per month in rent now).
I do not think this is a good deal. My husband says the most we should give them is $40k or $50k.
There has been no appraisal done on the home. My husband can get a VA home loan for $40k at a cheaper interest rate as well.
Are my parents being reasonable?
Should we do this deal? (I really don't want to do any other business with either family).
Should we be getting some credit for paying rent for the past 2 years? If so, what would be a reasonable amount?
Should we just keep paying rent and not buy the house?
I love questions like this because they help everyone to see things in a new way and work together to resolve the problem, one way or another.
Ultimately your parents either want the amount they are requesting or they would be willing to agree to sell it to you at a price that is what it is worth as determined by an independent appraiser.
If your gut says the home is not right for you, don't buy it. If there are other homes available that meet your goals for $39,000 less and you are happy with those, buy one of those.
Keep in mind that the tax value for the house and land is often much different, and lower, than the real value of the house and land. They really have nothing in common. Tax value is not a fair market value.
It's quite possible the house in its current condition is far more valuable than the $79,000 asking price. Bottom line is we have no clue what the home would appraise for.
Your parents sound like reasonable people so I'm confident they would see an independent appraisal to establish value is a reasonable approach. In fact I'd even suggest you split the cost of the appraisal with them since you will both benefit from it.
As far as getting credit for paying rent for the last two years that really depends on how much more than fair market value you were paying per month.
Typically the way rent-to-own agreements work is you get credit for either the amount you pay each month over fair market rent for the unit or some percentage (10% or so) that you pay each month. I've not seen any agreements where the person received full credit for rent paid unless the purchase price was significantly inflated.And I mean really inflated.
It seems to me you and your husband are not ready to buy or anywhere close to being able to make a decision about this house.
If you are serious about buying then you need to find a local mortgage broker and get pre-qualified for a mortgage to know how much of a mortgage you can actually get. Whatever they say, cut a third off. Just because you can be approved for a big number does not mean you can afford it and continue to live the life you want.
Then go out and start looking at properties you can afford. This, and getting the appraisal, will help you to better understand the value of the home you are in now and what is available in your price range.
Then, and only then can you make a fully informed decision about what is right for you.
Oh yes, and keep one think in mind, if you are young and plan to start a family in the future, get qualified on his income only if your plan is to stay home with the kids. I've seen far too many couples wind up overloaded with a mortgage when the kids come along.
WRAL Get Out of Debt Guy
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